A Taxing Situation

Conventional wisdom dictates that most onerous local regulations are born in the West and migrate East. It was a bit of a surprise, therefore, when I read about a dispute involving taxes levied on aggregates. This particular gem cropped up in Johnston County, Okla.

In mid-January, the Johnston County Commissioners endorsed Oklahoma Citizens for Aggregate Benefits. The Oklahoman reports that the organization is “designed to lobby for a tax on the production of silica, sand, gravel, and other aggregates.” The group is encouraging local elected officials to support H.B. 1876, authored by Rep. Charles McCall (R-Atoka), which would allow counties to set up tax rates of up to 7 percent on the production of aggregates. A Senate version of the bill, sponsored by Frank Simpson (R-Springer), didn’t make it out of committee last year.

Jim Rodriguez, executive director for the Oklahoma Aggregates Association, quickly pointed out some of the bill’s numerous flaws, including the fact that the tax rate could be set at different rates in different counties, creating a logistics nightmare for operators. He also noted that the only state that currently has a severance tax is Arkansas. Its tax is 4 cents per ton. The proposed tax, Rodriguez said could add up to 42 cents per ton.

Let’s reflect on average construction materials prices in Oklahoma. According to the U.S. Geological Survey’s most recent quarterly production reports, the average price of sand and gravel there is $6.22 per metric ton, while crushed stone rates a slightly higher price of $7.58. These tax rates could reflect the difference between profit and loss for many operators.

McCall claims that trucks hauling aggregate are damaging roads and infrastructure. That lever is being used to encourage support among county commissioners, but it fails to address two points: First, most operations have some sort of agreement with the local communities to upgrade the roads into and out of their operations; and second, most operations are in close proximity to highways (which are built to handle these loads) so they can efficiently transport their product to market.

On the upside, new taxes in Oklahoma require a 75-percent vote from the state legislature. If the tax is passed, however, homeowners, business owners, and the state DOT may find that the cost of purchasing Oklahoma aggregates may increase… perhaps by as much as 42 cents per ton.